Chapter 10 Flashcards

The output level at which the aggregate demand curve intersects the aggregate supply is always the level at which:

Macro equilibrium is achieved.

Gross business saving is equal to:

depreciation allowances plus retained earnings.

If injections equal leakages:

The economy will stabilize at full employment.

Equilibrium GDP could be upset by a change in:

Any leakage or injection.

If an economy is at full employment and investment spending decreases while all other levels of spending remaining constant then:

A GDP gap emerges.

When unwanted inventories pile up in retail stores, retail managers will take actions that lead to greater:

Unemployment.

If actual investment exceeds desired investment then:

A recession can develop.

Which of the following is an example of the multiplier at work as a result of an increase in consumption expenditures?

Households and businesses receive income from consumption expenditures; they spend a portion of this new income; these expenditures in turn generate income for other businesses and households, which in turn spend a portion of the new income, and so on.

If the marginal propensity to consume is 0.75, then the multiplier equals:

1/(1-0.75)

If the marginal propensity to consume is .60, then the multiplier equals:

2.50

An initial (autonomous) decrease in aggregate demand will likely be:

Much smaller than the eventual decline in spending.

Suppose an economy can be described by the consumption function C = 75 + 0.80YD and I=$50. What is the multiplier?

5.

Given the MPS = 0.40, with no government and no foreign trade a $10 billion increase in investment will eventually result in an increase in:

Consumption by $15 billion.

With an MPC of 0.75 an increase of $1 billion in autonomous consumption would cause:

A total change in spending of $4 billion.

If the MPC = 0.90, the total change in spending resulting from an initial $200 increase in aggregate spending will be:

$2,000

If the MPC = 0.80, the cumulative decrease in total spending resulting from an initial $150 recessionary gap would be:

$750

If aggregate demand shifts to the left by $400 billion and aggregate supply is upward sloping, then real output will decrease by:

Less than $400 billion and the price level will fall.

Which of the following is eliminated when the economy's output is equal to full-employment GDP?

The real GDP gap.

A decrease in aggregate demand will most likely cause a change in which of the following types of unemployment?

Cyclical

The recessionary GDP gap represents the:

Value of goods and services that could be produced but were not due to unemployed resources.

If desired investment exceeds actual investment, then:

Inventories are less than the desired level.

Because the aggregate supply curve rises more steeply as the economy approaches full employment: